Friday, October 30, 2009

William R. Hawkins (formerly an economics professor at Appalachian State University, the University of North Carolina-Asheville, and Radford University) argues that America is repeating the mistakes which led to the fall of the Hapsburg empire:

Spain was the first global Superpower...With Spain as its political base, and gold and silver flowing in from its American colonies, the Hapsburg dynasty became the dominant power in Europe. It controlled rich parts of Italy through Naples and Milan, and Central Europe from the Netherlands through the Holy Roman Empire to Austria. In the 16th century it added the far distant Philippine islands to its empire. The Hapsburgs held off the Ottoman Turks, whose resurgent wave of Islamic conquest in the 16th century swept across the Balkans and nearly captured Vienna.

The Hapsburgs went into decline in the 17th century, and while any such momentous event has many causes, for our purposes the focus will be on the economic collapse of Spain, which not only sapped the empire of strength but served to build up the power of its rivals.

The demands of empire required a strong and growing economy, but Spain did not keep up with the economic expansion that was taking place in other parts of Europe. Madrid’s financial base fell out from under its empire. Spain could continue to consume in the short term because of the flow of precious metals from American mines, but it could not produce the goods it needed at home, which in the long-run proved fatal to its standing as a Great Power and as an advanced society.

Spanish imports were double exports and the precious metals became scarce within weeks of the arrival of the American treasure fleets as the money flowed to Spain's many creditors. What industry there was, along with banking and shipping, was in the hands of foreign owners. As a modern historian, Jaime Vicens Vives, has concluded, “This was one of the fundamental causes of the Spanish economy's profound decline in the seventeenth century, maritime trade had fallen into the hands of foreigners.” This, plus the “opening of the internal market to foreign goods,” produced a “fatal result.” Spain's exports were at the same time under heavy pressure by competitors in third country markets. A nation that cannot control its domestic market will seldom be able to sustain itself in foreign markets, which are inherently less accessible and more unstable.

Yet, Spanish leaders were deluded by a sense of false prosperity. This is testified by the statement of a prominent official, Alfonso Nunez de Castro in 1675: “Let London manufacture those fine fabrics of hers to her heart's content; let Holland her chambrays; Florence her cloth; the Indies their beaver and vicuna; Milan her brocade, Italy and Flanders their linens...so long as our capital can enjoy them; the only thing it proves is that all nations train their journeymen for Madrid, and that Madrid is the queen of Parliaments, for all the world serves her and she serves nobody.” A few years later, the Madrid government was bankrupt. The Spanish nobleman had foolishly elevated consumption, a use for wealth, above production, the creation of wealth.

Historians have traced the flow of Spanish gold and silver across the markets of Europe. Those who “served” Spain by establishing industries to manufacture goods for the Spanish market gained the money. Spain’s rivals, France, Holland (which started a successful revolt in 1568) and England, prospered by their trade surpluses, and reinvested the money to expand their own capabilities. Another modern expert on Hapsburg history, Henry Kamen, has cited contemporary sources who referred to 17th century Spain as “the Indies for the foreigner.” The military empire of the Hapsburgs became the economic colony of other powers, or, to use a current phrase, Spain was the “engine of growth” for the rest of the continent.

Where there were jobs and prosperity, there was also rapid population growth, and rising tax revenue. Rival powers were able to field and finance military forces that could defeat the once superior Spanish forces both on land and at sea. The irony of this is that Spain was ruled by a warrior aristocracy tempered by centuries of constant warfare against Islamic hordes and Christian heretics. These nobles looked down on merchants and manufacturers and disparaged their mundane professions only to find that without a strong domestic business class they could not afford the fleets and armies that guarded the empire they had built.

Today, the American “empire” is also trying to consume more than it produces. The U.S. trade deficit is nearing Spain’s nadir of imports being double exports. Both government spending and private consumption are financed heavily by debt. Washington is printing money, the modern equivalent of digging gold out of the ground, rather than earning the means to pay its bills. And the political and military elites are apparently indifferent to the fate of domestic business and industry. Americans must learn ... from the Spanish experience ... and take corrective action while they still can.

My own view that that most manfuacturing in the US is going to be robotic because the US cannot compete in a world of global labor arbitrage, where workers are fungible. The last plant Chrysler built was completely robotic.

This is the coming trend in countries that cannot compete in manufacturing with emerging countries. China is only the first and biggest, but the economic reality is clear. The US will either automate or outsource going forward. Protectionist policies won't work either.

There's no turning back now, and there is no need to do so. It not in the competitive advantage of the US, and there are other, better ways to compete in the global economy that is fast emerging than trying to beef up manufacturing to "save American jobs."

Right now, the US is in the grip of neoliberal economic mythology that favors accumulation of capital by tilting the playing field. Were heterodox economic theories like MMT to become prevalent, those constraints would largely disappear with the demise of the myths.

The fact is that we can must consume our way to profitability, because consumption of goods and services are what the economy produces. If consumption falls short, an output gap emerges due to overcapacity and this results in unemployment, which further depresses aggregate demand.

What if imports exceed exports? No problem according to MMY, because imports are benefits and exports are costs.

Modern monetary theory shows how to run a economy (and potentially all economies interlinked through trade). See L Randall Wray, Understanding Modern Monetary Theory for the basics. Wray (Economic Perspectives), Warren Mosler (The Center of the Universe), and Bill Mitchell (billy blog)all regularly blog on this.

Until these ideas get more exposure and start percolating up in the mainstream, the myths will continue to dominate the political and economic universes of discourse.

Science does NOT have any solutions that do not create ten-fold the problems the original solution was meant to address, Tom.

Too many common empirical liars have stepped to the plate with your tired story-line before, and each has gone down -beaned in the noggin- by the fastball-hurling ace known as REALITY.

Your views are no different than those from crusty crusaders like the antique historian-philosopher Lewis Mumford, the starry-eyed writer of "Technics and Civilization" 1934, Harcourt, Brace and Co. I currently am reading all of Mumford's works, Tom. You'd love him.

Mumford thought the new machine age (1934) had all the solutions too. The Depression? Just a minor blip.

As if prognosticating from his own Star Ship Enterprize, Tom Hickey proclaims the age of robotics has created Utopia, -or it will create Utopia, -or it could create Utopia -if all the detractors tired and appalled at what modernity has wrought again for humanity -would step into the transporter room so they can be beamed to the planet Neg-on.

I love this, "modern monetary theory shows how to run a economy ..."

Sure it does, Tom. That's why the poll-fearing Obama Administration has ordered the CEOs of the top 28 banks in the country in for an excessive-compensation drubbing.

http://preview.tinyurl.com/yhc4o46

It's clear from this article that without massive government cash infusions, these banks would have been foreclosed upon by their creditors long ago.

These are -just some of the banks- Ben Bernanke refused to acknowledge received the trillions. GE's Too-Tall Jeffery Immelt got many more than a couple of 18 wheeler truck-loads of C-notes too, Tom.

The problem with the empirical approach, is that humanity is -at ever-increasing social cost- asked to suffer through the -all too quickly proved false- proclamations of -generation after generation after generation- of nauseating futurists -each of whom are sure some unnamed scientists locked away in some research lab -somewhere unknown- have finally come up with the solution to all of everyone's problems.

You forgot cold-fusion, Tom. But the media keeps serving it up for what the scientists have in store for the quack future. Cold-fusion and a genetic engineering solution for SuperMan's paraplegic state.

SuperMan is dead, Tom. Science is dead too. And so isn't the credit economy dead.

We live in the scientific future of Lewis Mumford, Tom Hickey. And it ain't what it was cracked up to be, not by a long shot.

Tom- Like every problem of the empirical age, the problems you are saying can be solved by -modern monetary theory- are the problems that are caused by modern monetary theory.

This is not a tautology. This is deja vu all over again.

This recurrent observation is what gives rise to the conclusion that the empirical approach is an historic dead-end that keeps finding an increasingly shorter distance to the closed-end of the perpetual scientific -cul de sac- of the empirical thought processes, -where- every turn the empiricists make -trying to correct the empirical mistakes of the past- ends up just another worsening dead end. -D.R.

Anonymous, thanks for responding at length. Your response indicates that you are thinking in terms of the standard neoliberal model that has become so ubiquitous that it is confused with economics per se. Everyone gets brainwashed into this model in Econ 101, and it is repeated ad nauseam in the media until is accepted as the established narrative. Modern monetary theory is a new way of viewing economics that doesn't presume that macro is based on micro, the way neoliberalism does. It also doesn't abjures specious assumptions like a single "representational agent" for all consumers in the interest of achieving mathematical elegance at the risk of misrepresenting reality.

I'm afraid that you are confusing modern monetary theory (MMT) with the current practice of monetary theory and the current policies, strategy, and tactics based on it that the Fed and Treasury are implementing. The current theory and policy are based on the pre-1971 conditions of a convertible currency, as well as flawed neoliberal understanding of monetary theory. For example, Bernanke is a student of the Great Depression and is using this knowledge to respond to the present crisis. However, the US was on a convertible currency at that time, which limited what the Fed and Treasury could have done, even if they had known about MMT. The result of Bernanke's mistaken assumption that the periods are comparable is making him miss the opportunities that MMT provide.

MMT would be directly targeting the output gap to reduce unemployment instead of lavishing ignoring Main Street in favor of Wall Street, as Bernanke, Geither, and Summers are doing. Unfortunately, President Obama is listening to them.

Read the references I posted above and respond with criticisms of the actual facts relating to MMT and its policy proposals, and I will take any objections seriously. Otherwise, not.

What you have written shows that you are ignorant of MMT. For a quick summary, start with Bill Mitchell's Stock-flow consistent macro models. Bill shows how MMT works. MMT is based on standardized principles of (national) accounting, not economic theory grounded on assumptions.

Nothing is going to change much as long as the Fed continues to operate on the flawed neoliberal model now in use, which presumes a buffer stock of unemployment to control inflation, which favors capital at the expense of labor. Conversely, MMT shows the way to full employment with price stability, a chief progressive economic goal.

It is very important for progressive, first, to counter the prevailing model and norms of the economic/political universe of discourse, which are neoliberal shibboleths designed to marginalize all other point of view that challenge the memes of the established narrative. Secondly, progressives need to promote a politics based on an economic theory that is representative of reality and advance workable proposals derived from it.

I am not an economist, but from what I can glean MMT is a progressive theory that is reality-based and supports a progressive agenda based on solid economic and political ground. Moreover, it shows where and how neoliberalism is erroneous. Check it out.

This laughably fanciful argument is thoroughly explored in the half-century old musical theater production "The Music Man" -that because of its universally recognized philosophic truths -has been translated and performed worldwide.

"You Got Trouble"-From the musical The Music Man"

Friends, lemme tell you what I mean.Ya got one, two, three, four, five, six pockets in a table.Pockets that mark the diff'renceBetween a gentlemen and a bum,With a capital "B,"And that rhymes with "P" and that stands for pool!And all week long your River CityYouth'll be frittern away,I say your young men'll be frittern!Frittern away their noontime, suppertime, choretime too!Get the ball in the pocket,Never mind gittin' Dandelions pulledOr the screen door patched or the beefsteak pounded.Never mind pumpin' any water'Til your parents are caught with the Cistern emptyOn a Saturday night and that's trouble,Oh, yes we got lots and lots a' trouble.I'm thinkin' of the kids in the knickerbockers,Shirt-tail young ones, peekin' in the poolHall window after school, look, folks!Right here in River City.Trouble with a capital "T"And that rhymes with "P" and that stands for pool!Now, I know all you folks are the right kinda parents.I'm gonna be perfectly frank.Would ya like to know what kinda conversation goesOn while they're loafin' around that Hall?They're tryin' out Bevo, tryin' out cubebs,Tryin' out Tailor Mades like Cigarette Feends!And braggin' all aboutHow they're gonna cover up a tell-tale breath with Sen-Sen.One fine night, they leave the pool hall,Headin' for the dance at the Arm'ry!Libertine men and Scarlet women!And Rag-time, shameless musicThat'll grab your son and your daughterWith the arms of a jungle animal instink!Mass-staria!Friends, the idle brain is the devil's playground!

People:Trouble, oh we got trouble,Right here in River City!With a capital "T"That rhymes with "P"And that stands for Pool,That stands for pool.We've surely got trouble!Right here in River City,Right here!Gotta figger out a wayTo keep the young ones moral after school!Trouble, trouble, trouble, trouble, trouble...

Harold:Mothers of River City!Heed the warning before it's too late!Watch for the tell-tale sign of corruption!The moment your son leaves the house,Does he rebuckle his knickerbockers below the knee?Is there a nicotine stain on his index finger?A dime novel hidden in the corn crib?Is he starting to memorize jokes from Capt.Billy's Whiz Bang?Are certain words creeping into his conversation?Words like 'swell?"And 'so's your old man?"Well, if so my friends,Ya got trouble,Right here in River city!With a capital "T"And that rhymes with "P"And that stands for Pool.We've surely got trouble!Right here in River City!Remember the Maine, Plymouth Rock and the Golden Rule!Oh, we've got trouble.We're in terrible, terrible trouble.That game with the fifteen numbered balls is a devil's tool!Oh yes we got trouble, trouble, trouble!With a "T"! Gotta rhyme it with "P"!And that stands for Pool!!!

The sort of reality Tom is speaking about is built on the shifting sands on the shore of the often violently raging river of time.

For those still following this thread, Bill Mitchell posted a blog today that goes into how progressive shoot themselves in the foot by mouthing conservative memes. It gives a brief picture of what MMT says about government deficit spending, debt, and taxes, based on the functional finance principles that Abba Lerner developed in the 1940's to achieve full employment along with price stability. This has been around awhile, and most progressives still haven't picked up on it, so they continue to stumble into cleverly set but crude neoliberal traps.

Please Enable Javascript for this Oil Price widget to workPlease Enable Javascript for this Oil Price widget to workPlease Enable Javascript for this Oil Price widget to workPlease Enable Javascript for this Oil Price widget to workPlease Enable Javascript for this Oil Price widget to workPlease Enable Javascript for this Oil Price widget to workPlease Enable Javascript for this Oil Price widget to work